Go.com reported a smaller-than-expected loss of 47 cents a share in the second quarter and topped Wall Street expectations with sales of $97.6m. ABN Amro analyst Arthur Newman also started coverage of the portal Wednesday with a "buy" rating, the firm's highest mark.
"I think it's a great story that's overlooked and oversold," said Newman.
Wall Street apparently doesn't agree just yet. Go shares were off Wednesday after the second quarter results. Newman, who isn't alone with his bullishness on the stock, said Go is simply undervalued.
According to Media Metrix, Go.com is the sixth largest site on the Web and counts NBCI, Lycos and Excite@Home as its closest peers in terms of reach. But Go has about half of NBCI's $1.2bn (£0.77bn) market capitalisation, and can't even touch Lycos or Excite@Home, not to mention America Online or Yahoo!
Portals lower on the Media Metrix food chain -- Ask Jeeves, About.com, Go2Net and LookSmart.com -- all top Go in market cap.
Even factoring in that Go is a "tracking stock" of Disney sans a takeover premium and profits, things look a bit out of sync.
Newman, however, reckons Go will approach the valuation of its peers -- especially once the dot-com shakeout is complete. If anything, Go has enough of Disney's cash to make just about anything work.
Analysts said believing in Go.com is easy -- as long as you believe in Disney brands such as ABC.com and ESPN.com. "It's about the brands more than anything," said Daniel Davila, an analyst with Hibernia Southcoast Capital. "They would have to seriously screw it up not to succeed."
In fact, Go's second quarter conference call gave a few reasons for optimism. For starters, Go didn't screw anything up for the first time in many quarters. Management laid a lot of groundwork, had solid growth and beat top-line estimates. "Remember, Go is still cleaning up a mess and eliminating duplicate infrastructure," said Newman.
That mess was Infoseek. After dabbling with a Go joint venture between Disney and Infoseek, Mickey & Co. finally brought Go in house last year. Since Disney has had Go under its control, the management turnover has subsided and those long-awaited synergies are starting to appear. Go is focused on being an entertainment portal, a move that allows it to showcase Disney properties and layer in e-commerce such as auctions and travel packages. By focusing on entertainment, it also stays conveniently out of Yahoo's and AOL's way.
But Wall Street isn't going to start hopping on the bandwagon just yet. Analysts said the fall will be prime time for Go. Here's why Go could be a winner once the leaves start falling:
- It's a marathon not a sprint -- On Go's conference call, everyone but Mickey Mouse spoke. The head mouseketeer -- Disney CEO Michael Eisner -- summed it up best. "We're in it for the long-term and that's not next week," said Eisner. "It'll take time to fully optimise our Internet assets." Go has the one thing a lot of dot-coms need -- cash. Disney will eventually make Go work.
In addition, the proposed AOL Time Warner merger has quelled those tired old media vs. new media debates. These days it's just big media.
- Go.com is growing -- It took awhile, but the portal is starting to grow again. While it tinkered around with its vision and other items, its growth was weak. Growth is still a bit shaky, but it's headed in the right direction. Average daily page views were up 9 percent sequentially. It was easy to nit-pick about traffic growth in prior quarters.
- Better fiscal management -- Even though Go's expenses are huge, management is squeezing costs out of the company. Once the company eliminates duplicate operations from the Infoseek combination, things will improve. Go has also authorised a buyback of 5m shares. ABC.com was profitable, but Go won't be profitable for awhile. Best Wall Street guess is 2002-ish.
- Synergies with Disney -- Synergy is the big prize and Go hasn't even realised the potential yet. It is on the right track, however. The company is redesigning many of its properties for the fall. Go has also launched auctions and hawked Disney cruises and travel packages on the portal. Enhanced TV promotions with ABC's Who Wants to Be a Millionaire have also been a big hit. The September quarter will also be worth watching because Go and ABC are offering joint TV/Web advertising packages. All that revenue will appear in the fall quarter for Go.
"In the fall you will see a big boost from the repositioning," said Newman. "You have the Disney redesign, commerce, travel and the Go redesign. Where's the downside from here?"
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